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Sears Holdings Reports First Quarter Results

Sears Holdings Corporation ("Holdings" or "the Company") (NASDAQ: SHLD) today reported net income of $180 million, or $1.14 per diluted share, for the first quarter ended April 29, 2006, compared with a net loss of $9 million, or $(0.07) per diluted share, for the first quarter ended April 30, 2005. The prior year results include a $90 million charge due to the cumulative effect of a change in accounting for certain indirect overhead costs included in inventory. Excluding the change in accounting, the prior year first quarter net income was $81 million, or $0.65 per diluted share. The improvement in first quarter 2006 earnings reflects improved profitability at both Kmart and Sears Domestic, largely due to reduced expenses.

"While we're pleased with the progress we're making, we continue to look for ways to be more efficient and effective in our business," said Aylwin Lewis, Sears Holdings' chief executive officer and president. He added, "With a goal of dramatically improving the customer experience at all of Sears Holdings' touch points, we are starting with the basics and working with our associates to drive the culture shift necessary to become a great retail company."

The statements of operations for the 13 weeks ended April 29, 2006 are not comparable to the prior year period because the prior year period includes the results of Sears, Roebuck and Co. ("Sears") only for the period subsequent to March 24, 2005, the date of its acquisition by Kmart Holding Corporation ("Kmart"). In order to provide a comparable performance measure for the combined Company, pro forma results for the prior year period have been presented as though Kmart and Sears had been combined as of the beginning of fiscal 2004. On a pro forma basis, the Company's income before the cumulative effect of the accounting change in the first quarter of fiscal 2005 was $12 million, or $0.07 per diluted share.

First Quarter Revenues and Comparable Store Sales

Domestic comparable stores sales declined 4.8% in the aggregate, with Sears Domestic comparable store sales declining 8.4% and Kmart comparable store sales declining 0.2%. The decline in Kmart comparable store sales for the quarter was primarily due to lower transaction volumes within home goods partially offset by increased sales in apparel and within food and other consumable goods categories. Sears Domestic comparable store sales results reflect declines across all categories and formats except within home appliances, which generated a modest comparable store sales increase.

Total revenues increased $4.4 billion to $12.0 billion for the 13 weeks ended April 29, 2006, as compared to total revenues of $7.6 billion for the 13 weeks ended April 30, 2005. The increase during the 13-week period ended April 29, 2006 was primarily attributable to the inclusion of Sears for the full 13-week period ended April 29, 2006. Sears revenues were $7.7 billion for the 13 weeks ended April 29, 2006 as compared to $3.1 billion for the 13 weeks ended April 30, 2005, which period only includes the results of Sears subsequent to March 24, 2005, the date of its acquisition by Kmart. Total revenues at Kmart declined $0.3 billion as compared to the prior year period, primarily reflecting a reduction in the total number of Kmart stores in operation.

Operating Income

Operating income was $331 million for the 13 weeks ended April 29, 2006, as compared to $151 million for the 13 weeks ended April 30, 2005. The increase in operating income was due to an increase of $135 million of Sears Domestic operating income, as well as a $47 million increase in Kmart operating income mainly due to lower expenses as a result of realizing merger synergies and improved expense management.

On a pro forma basis, operating income improved $231 million from $100 million in the prior year period to $331 million, primarily due to a reduction of selling and administrative costs which decreased from $3,040 million (23.8% of revenues) last year to $2,721 million (22.7% of revenues) this year. On a pro forma basis, revenues declined from $12.8 billion last year to $12.0 billion this year mainly due to the domestic comparable store sales decline of 4.8% as noted above. The decline in comparable store sales was largely offset by an improvement in gross margin rate to 27.8% this year, an increase of 140 basis points from the prior year rate.

Financial Position

The Company's cash and cash equivalents balance is $3.2 billion at April 29, 2006 as compared to $1.9 billion at April 30, 2005 and $4.4 billion at January 28, 2006. The decline in cash from fiscal 2005 year end is due to the funding of seasonal working capital requirements and share repurchases.

Holdings' inventory level at April 29, 2006 was approximately $9.6 billion, as compared to $9.5 billion as of April 30, 2005. The increase reflects higher inventory in Kmart apparel and Sears Domestic hardlines businesses, partially offset by a reduction in Sears apparel inventory. Merchandise payables were $3.6 billion at April 29, 2006, as compared to $3.7 billion as of April 30, 2005.

Share Repurchase

During the first quarter of 2006, the company repurchased 3.3 million common shares at a total cost of $413 million, or an average price of $125.65 per share. As of April 29, 2006, the Company had remaining authorization to repurchase $497 million of common shares under its existing share repurchase program approved by the board of directors. The remaining shares may be purchased in the open market, through self-tender offers or through privately negotiated transactions. Timing will depend on prevailing market conditions, alternative uses of capital and other factors.

Pro Forma Adjusted EBITDA

For purposes of evaluating operating performance, the Company's management uses a Pro Forma Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization ("Pro Forma Adjusted EBITDA") measurement computed as operating income appearing on the statement of operations less depreciation and amortization and gains/(losses) on sales of assets. In addition, it is adjusted to exclude certain merger-related costs and restructuring charges. Pro Forma Adjusted EBITDA is used by management to evaluate the operating performance of the Company's businesses for comparable periods. Pro Forma Adjusted EBITDA should not be used by investors or other third parties as the sole basis for formulating investment decisions as it excludes a number of important cash and non-cash recurring items. Management compensates for this limitation by using GAAP financial measures as well in managing the Company's businesses.

While Pro Forma Adjusted EBITDA is a non-GAAP measurement, management believes that it is an important indicator of operating performance because:

  -- EBITDA excludes the effects of financing and investing activities by
     eliminating the effects of interest and depreciation costs;
  -- Management considers merger transaction costs to result from
     extraordinary activities that are not part of normal operations;
  -- Restructuring activities, while periodically affecting the Company's
     results, may vary significantly from period to period and have a
     disproportionate effect in a given period, which affects the
     comparability of results; and
  -- Management considers gains/(losses) on the sale of assets to result
     from investing decisions rather than ongoing operations.


  Pro Forma Adjusted EBITDA is determined as follows:

                                                      13 Weeks Ended
                                                   April 29,   April 30,
                                                     2006       2005
                                                              Pro Forma
  Operating income per statement of operations       $331       $100
  Plus depreciation and amortization                  289        283
  Less gain on sales of assets                        (17)        (7)
  Before excluded items                               603        376

  Merger transaction costs                              -         34
  Restructuring charges                                 9          3
  Pro Forma Adjusted EBITDA as defined               $612       $413
  % to revenues                                       5.1%       3.2%



Pro Forma Adjusted EBITDA for the Company's domestic (United States operations) and Sears Canada operations is as follows:

                                             13 Weeks Ended
                                 Pro Forma Adjusted
                                       EBITDA             % To Revenues
                               April 29,   April 30,  April 29,   April 30,
                                  2006        2005       2006      2005
                                           Pro Forma             Pro Forma

  Domestic operations             $574       $364        5.2%      3.1%
  Sears Canada                      38         49        3.6%      4.6%
    Total Pro Forma Adjusted
     EBITDA                       $612       $413        5.1%      3.2%



  Quarterly Report on Form 10-Q

The Company plans to file with the SEC its Quarterly Report on Form 10-Q for the first quarter 2006 on or before June 8, 2006. The Company elected to report its first quarter results in advance of the filing of this report in order to provide information to its shareholders closer to the quarter end.

Forward-Looking Statements

Results are preliminary and unaudited. This press release contains forward-looking statements about the Company's goals. Forward-looking statements are subject to risks and uncertainties that may cause the Company's actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements. Such statements include, but are not limited to, statements about the expected benefits of the business combination of Sears and Kmart and future financial and operating results. Such statements are based upon the current beliefs and expectations of the Company's management and are subject to significant risks and uncertainties. Risks and uncertainties include the possibility that we fail to offer products and services that satisfy the desires of our customers, whose preferences may change in the future, or other factors outside the control of Holdings. Actual results may differ materially from those set forth in the forward- looking statements. The Company intends the forward-looking statements to speak only as of the time made and does not undertake to update or revise them as more information becomes available.

About Sears Holdings Corporation

Sears Holdings Corporation is the nation's third largest broadline retailer, with approximately $55 billion in annual revenues, and with approximately 3,900 full-line and specialty retail stores in the United States and Canada. Sears Holdings is the leading home appliance retailer as well as a leader in tools, lawn and garden, home electronics and automotive repair and maintenance. Key proprietary brands include Kenmore, Craftsman and DieHard, and a broad apparel offering, including such well-known labels as Lands' End, Jaclyn Smith and Joe Boxer, as well as the Apostrophe and Covington brands. It also has Martha Stewart Everyday products, which are offered exclusively in the U.S. by Kmart and in Canada by Sears Canada. The company is the nation's largest provider of home services, with more than 13 million service calls made annually. For more information, visit Sears Holdings' website at .

                        Sears Holdings Corporation
                         Statement of Operations
                               (Unaudited)

                                                    13 Weeks Ended
                                                Reported           Pro forma
  millions, except per common share data   April 29,   April 30,   April 30,
                                             2006       2005         2005
  REVENUES
    Merchandise sales and services         $11,998     $7,617       $12,668
    Credit and financial products
     revenues                                  -            9            95
       Total revenues                       11,998      7,626        12,763

  COSTS AND EXPENSES
    Cost of sales, buying and occupancy      8,665      5,655         9,327
    Gross margin rate                         27.8%      25.8%         26.4%

    Selling and administrative(1)            2,721      1,715         3,040
    Selling and administrative expense
     as a percentage of total revenues        22.7%      22.5%         23.8%

    Depreciation and amortization              289        107           283
    Provision for uncollectible credit
     card accounts(1)                           -           1            17
    Gain on sales of assets                    (17)        (6)           (7)
    Restructuring charges(1)                     9          3             3
        Total costs and expenses            11,667      7,475        12,663

  Operating income                             331        151           100
  Interest expense, net                         47         42            75
  Bankruptcy-related recoveries                 (1)       (17)          (17)
  Other income                                 (11)        (9)          (19)

  Income before income taxes, minority
   interest and cumulative effect of
   change in accounting principle              296        135            61
  Income taxes                                 118         52            41
  Minority interest                             (2)         2             8

  Income before cumulative effect of
   change in accounting principle              180         81            12
  Cumulative effect of change in
   accounting principle (net of income
   tax benefit of $58)                          -         (90)          (90)
  NET INCOME (LOSS)                           $180        $(9)         $(78)

  EARNINGS (LOSS) PER COMMON SHARE
    Diluted earnings per share before
     cumulative effect of change in
     accounting principle                    $1.14      $0.65         $0.07
    Diluted earnings (loss) per share        $1.14     $(0.07)       $(0.48)

    Diluted weighted average common
     shares outstanding                      158.0      124.8         164.8

  (1) The provision for uncollectible credit card accounts and restructuring
      charges were presented in selling and administrative expense in the
      fiscal 2005 first quarter Form 10-Q.


                        Sears Holdings Corporation
                              Balance Sheets

                                               (Unaudited)

  millions                                April 29,    April 30, January 28,
                                            2006          2005       2006
  ASSETS
  Current assets
     Cash and cash equivalents             $3,182        $1,882     $4,440
     Credit card receivables                   -          1,051         -
     Account receivable                       734           638        811
     Merchandise inventories                9,581         9,476      9,068
     Prepaid expenses, deferred charges
      and other current assets                512           581        372
     Deferred income taxes                    590           574        516
     Total current assets                  14,599        14,202     15,207

  Property and equipment, net               9,500        10,141      9,823
  Goodwill                                  1,792         2,057      1,684
  Tradenames and other intangible assets    3,453         3,866      3,448
  Other assets                                573           630        411
     TOTAL ASSETS                         $29,917       $30,896    $30,573

  LIABILITIES
  Current liabilities
     Short-term borrowings                   $134          $246       $178
     Current portion of long-term debt
      and capitalized lease obligations       215           748        570
     Merchandise payables                   3,634         3,660      3,458
     Income taxes payable                     427           464        449
     Other current liabilities              3,796         3,298      3,917
     Unearned revenues                      1,155         1,103      1,047
     Other taxes                              646           708        731
     Total current liabilities             10,007        10,227     10,350

  Long-term debt and capitalized lease
   obligations                              3,510         3,438      3,268
  Pension and postretirement benefits       2,392         2,607      2,421
  Minority interest and other
   liabilities                              2,633         3,463      2,923
     Total Liabilities                     18,542        19,735     18,962

  SHAREHOLDERS' EQUITY
  Preferred stock, 20 shares
   authorized; no shares outstanding           -             -          -
  Common stock                                  2             2          2
  Capital in excess of par value           10,266         9,907     10,258
  Retained earnings                         2,377         1,331      2,198
  Treasury stock - at cost                 (1,057)           (6)      (642)
  Accumulated other comprehensive loss       (213)          (73)      (205)
     Total Shareholders' Equity            11,375        11,161     11,611

     TOTAL LIABILITIES AND
      SHAREHOLDERS' EQUITY                $29,917       $30,896    $30,573


  Total common shares outstanding           156.5         164.9      159.8



                          Sears Holdings Corporation
                               Segment Results
           For the 13 Weeks Ended April 29, 2006 and April 30, 2005
                                 (Unaudited)

  2006  - Reported
  millions                                            Sears
                                                                    Sears
                                         Kmart  Domestic  Canada   Holdings
  Merchandise sales and services
   revenue                               $4,254   $6,697   $1,047   $11,998

  Cost of sales, buying and occupancy     3,241    4,661      763     8,665
  Gross margin rate                        23.8%    30.4%    27.1%     27.8%
  Selling and administrative(1)             855    1,620      246     2,721
  Selling and administrative expense as
   a percentage of total revenues          20.1%    24.2%    23.5%     22.7%
  Depreciation and amortization              15      240       34       289
  Gain on sales of assets                   (17)      -        -        (17)
  Restructuring charges(1)                    4       -         5         9
  Total costs and expenses                4,098    6,521    1,048    11,667
  Operating income (loss)                  $156     $176      $(1)     $331

  Number of:
    Kmart Stores                          1,400       -        -      1,400
    Full-Line Stores                         -       935      123     1,058
    Specialty Stores                         -     1,112      254     1,366
    Total Stores                          1,400    2,047      377     3,824


  2005  - Reported
  millions                                              Sears
                                                                      Sears
                                          Kmart  Domestic   Canada  Holdings

  Merchandise sales and services         $4,522   $3,001      $94    $7,617
  Credit and financial products
   revenues                                  -        -         9         9
    Total revenues                        4,522    3,001      103     7,626

  Cost of sales, buying and occupancy     3,462    2,124       69     5,655
  Gross margin rate                        23.4%    29.2%    26.6%     25.8%
  Selling and administrative(1)             944      744       27     1,715
  Selling and administrative expense as
   a percentage of total revenues          20.9%    24.8%    26.2%     22.5%
  Depreciation and amortization              10       92        5       107
  Provision for uncollectible credit
   card accounts(1)                          -        -         1         1
  Gain on sales of assets                    (6)      -        -         (6)
  Restructuring charges(1)                    3       -        -          3
  Total costs and expenses                4,413    2,960      102     7,475
  Operating income (loss)                  $109      $41       $1      $151

  Number of:
    Kmart Stores                          1,479       -        -      1,479
    Full-Line Stores                         -       879      122     1,001
    Specialty Stores                         -     1,161      218     1,379
    Total Stores                          1,479    2,040      340     3,859


  2005  - Pro Forma
  millions                                            Sears
                                                                     Sears
                                         Kmart   Domestic   Canada  Holdings

  Merchandise sales and services         $4,522   $7,171     $975   $12,668
  Credit and financial products
   revenues                                  -        -        95        95
    Total revenues                        4,522    7,171    1,070    12,763

  Cost of sales, buying and occupancy     3,462    5,142      723     9,327
  Gross margin rate                        23.4%    28.3%    25.8%     26.4%
  Selling and administrative(1)             944    1,815      281     3,040
  Selling and administrative expense as
   a percentage of total revenues          20.9%    25.3%    26.3%     23.8%
  Depreciation and amortization              10      234       39       283
  Provision for uncollectible credit
   card accounts(1)                          -        -        17        17
  Gain on sales of assets                    (6)      (1)      -         (7)
  Restructuring charges(1)                    3       -        -          3
  Total costs and expenses                4,413    7,190    1,060    12,663
  Operating income (loss)                  $109     $(19)     $10      $100


  (1) The provision for uncollectible credit card accounts and restructuring
      charges were presented in selling and administrative expense in the
      fiscal 2005 first quarter Form 10-Q.



                          Sears Holdings Corporation
                          Pro Forma Adjusted EBITDA

                                        13 Weeks Ended
                         April 29, 2006                April 30, 2005
                   Domestic   Sears    Sears     Domestic   Sears    Sears
                  Operations  Canada  Holdings  Operations  Canada  Holdings
                                                    Pro      Pro      Pro
                                                   Forma    Forma    Forma
  Operating income
   per statement
   of operations     $332      $(1)     $331        $90      $10      $100
  Plus depreciation
   and amortization   255       34       289        244       39       283
  Less gain on sale
   of assets/
   businesses         (17)      -        (17)        (7)      -         (7)
  Before excluded
   items              570       33       603        327       49       376

  Merger transaction
   costs               -        -         -          34       -         34
  Restructuring
   charges              4        5         9          3       -          3
  Pro Forma Adjusted
   EBITDA as defined $574      $38      $612       $364      $49      $413
  % to  revenues      5.2%     3.6%      5.1%       3.1%     4.6%      3.2%



                         Sears Holdings Corporation
                          Pro Forma Reconciliation

  The following tables provide a reconciliation from the as reported
  results to the pro forma results presented for Sears Holdings, Sears
  Domestic and Sears Canada for the 13-week period ended April 30, 2005.

  Sears Holdings
                                        13-week period ended April 30, 2005
  millions, except per                             Pre-
   common share data                      As      merger    Purchase    Pro
                                       reported  Activity  Accounting  Forma

  Merchandise sales and services        $7,617    $5,051     $ -    $12,668
  Credit and financial products
   revenues                                  9        86       -         95
    Total revenue                        7,626     5,137       -     12,763

  Cost of sales, buying and occupancy    5,655     3,672       -      9,327
  Selling and administrative(1)          1,715     1,314       11     3,040
  Depreciation and amortization            107       147       29       283
  Provision for uncollectible credit
   card accounts(1)                          1        16       -         17
  Gain on sales of assets                   (6)       (1)      -         (7)
  Restructuring charges(1)                   3        -        -          3
  Total costs and expenses               7,475     5,148       40    12,663
  Operating income (loss)                  151       (11)     (40)      100
  Interest (expense) income, net            42        35       (2)       75
  Bankruptcy-related recoveries            (17)       -        -        (17)
  Other income                              (9)      (10)      -        (19)
  Income before income taxes, minority
   interest and cumulative effect of
   change in accounting principle          135       (36)     (38)       61
  Income tax expense (benefit)              52         4      (15)       41
  Minority interest                          2         6       -          8
  Income before cumulative effect of
   change in accounting principle           81       (46)     (23)       12
  Cumulative effect of change in
   accounting principle, net of tax        (90)       -        -        (90)

  NET INCOME (LOSS)                        $(9)     $(46)    $(23)     $(78)



  Sears Domestic
                                       13-week period ended April 30, 2005
                                                   Pre-
  millions                                As      merger    Purchase    Pro
                                       reported  Activity  Accounting  Forma

  Merchandise sales and services
   revenue                              $3,001    $4,170     $ -     $7,171

  Cost of sales, buying and occupancy    2,124     3,018              5,142
  Selling and administrative               744     1,060       11     1,815
  Depreciation and amortization             92       116       26       234
  Gain on sales of assets                    -        (1)      -         (1)
  Total costs and expenses               2,960     4,193       37     7,190
  Operating income (loss)                  $41      $(23)    $(37)     $(19)


  Sears Canada
                                       13-week period ended April 30, 2005
                                                   Pre-
  millions                                As      merger    Purchase    Pro
                                       reported  Activity  Accounting  Forma

  Merchandise sales and services          $94       $881      $-       $975
  Credit and financial product revenues     9         86       -         95
    Total revenues                        103        967       -      1,070

  Cost of sales, buying and occupancy      69        654       -        723
  Selling and administrative(1)            27        254       -        281
  Depreciation and amortization             5         31        3        39
  Provision for uncollectible credit
   card accounts(1)                         1         16       -         17
  Gain on sales of assets                  -          -        -         -
  Restructuring charges(1)                 -          -        -         -
  Total costs and expenses                102        955        3     1,060
  Operating income (loss)                  $1        $12      $(3)      $10


  (1) The provision for uncollectible credit card accounts and restructuring
      charges were presented in selling and administrative expense in the
      fiscal 2005 first quarter Form 10-Q.

SOURCE: Sears Holdings Corporation

CONTACT: News Media, Sears Holdings Public Relations, +1-847-286-8371

Web site:








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